249 - Why You Should Buy Rentals with Non Paying Tenants Inside Cash Flow Guys Podcast

For many, buying a property with non-paying tenants or squatters residing there would be a red flag. I see such a situation as a huge opportunity to negotiate a great deal.
Landlords that have non paying tenants are most often in deep financial trouble if they have a loan payment to make every month.  This is because most landlords only see a few hundred dollars of profit per unit because the rest goes to the bank.
Non-paying tenants mean that the owner needs to make those mortgage payments even though the tenant is not paying.  Although some landlords can handle this financial burden, most can’t for very long.
Statistically speaking, 24% of multifamily tenants have not paid their rent in full as of Sept 6th, 2020 as compared to only 18.8% in September 2019 according to NMHC.org (National Multifamily Housing Council.  That tells me that there’s a good chance the landlord either has or will have non paying tenants in the near future.  Now is the time to get the attention of these landlords.
How do you find these sellers?  The same way you would find motivated sellers for any other reason, we target market them.
Direct Mail
Paid Social Media Ads
Billboards
Bandit signs
Print Ads in Newspapers
Advertise in Trade magazines that target Property Managers and Landlords
NARPM.org National Association of Residential Property Managers
On the first contact, don’t be surprised if the seller is resistant to share their financial woes with you.  I would imagine that most landlords would be somewhat offended if you called them out of the blue and asked if they had non paying tenants.  Instead, attract them with a targeted marketing message.
As a buyer, you can help them in several ways.  Motivated sellers in financial crisis are proven to be far more receptive to creative options as compared to unmotivated sellers.  If the most pressing problem is non-payment of rent, the owner might feel helpless due to recent moratoriums on eviction.  The good news is as a real estate problem solver, you can step in and help.
 
Why should you buy these problems?
You can analyze the deal upfront and allow for reduced or no income for 6 months to a year.  That means setting aside an amount equal to the non collected rents to cover expenses that will occur once the property is yours.  These amounts can be taken from any equity due to the seller.  You can also raise this money from your funding partners in advance of the purchase.
Structured properly you will be able to create incredibly profitable deals for you and your partners/investors while helping a seller avoid further pain and torture.
Negotiating terms will be easy (if you let it be) because the sellers will be incredibly motivated with unpaid expenses hanging over their heads.
The current eviction ban crisis shifts the market from being a seller’s market to a buyer’s market pretty much overnight if the property you want is occupied by a non-paying tenant.
 
Here are the facts you will have to share with the Seller.
The tenants are not required to pay a penny for the rest of 2020, and that date could be extended even farther.  Any unpaid rent and late fees do accrue which means they must be paid at some point in the future.
When evictions ARE allowed, imagine the backlog that is forming and building every minute of the day, it could take a very long time to get your case heard.
If the tenants are paying now, there is no guarantee that will continue, job losses will continue.
Our elected officials cannot agree on the stimulus or unemployment extensions, don’t be shocked when nothing happens until at least November on that front.
If rent isn’t coming in, it will be even harder to keep up with maintenance because of a lack of available funds.
The situation gets worse every month and likely will not improve until 2021 or later.
Face facts, squatters aren’t known for keeping their homes in great shape, expect renovations to be required once you